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Cost of employee health benefits up 6.7%, Mercer survey says

Few large employers plan to stop offering health benefits once key provisions in federal health care reform kick in. Health plans that pair high deductibles with savings accounts are becoming more common. And health benefits on average now cost more than $10,000 per employee.

Those are some of findings from an annual survey released Wednesday by Mercer, a benefits consulting company.

The cost of providing health benefits in the Milwaukee area increased to $10,441 per employee this year, up 6.7% from last year, according to the survey.

That was slightly higher than the national average of $10,146 for each employee, a 6.1% increase from last year.

Forty-five employers in the Milwaukee area participated in the national survey of 2,844 employers with 10 or more employees.

The survey includes the employee's share of the premium but not out-of-pocket expenses, such as deductibles and co-pays.

The estimates - while well below the double-digit increases early in the last decade - are well above the rate of inflation.

They also make clear that health benefits have become a significant part of workers' total compensation. And that trend is expected to continue. Nationally, employers participating in the survey estimate costs will increase 5.7% next year.

In the Milwaukee area, employers estimate costs will increase 6.6% next year if they make no changes in their benefits. But they expect to hold the increase to 3.1% by making changes, including raising deductibles and other out-of-pocket expenses or changing health insurers or health plan administrators.

The estimates from the Mercer survey are lower than those found in other recent surveys on the cost of health benefits.

A survey by the Kaiser Family Foundation, a health policy research organization, and the Health Research & Educational Trust, an affiliate of the American Hospital Association, estimated that costs increased 9% for family coverage and 8% for single coverage this year. It estimated that health insurance provided by an employer now costs an average of $15,073 a year for a family and $5,429 for individual coverage.

A survey by HCTrends estimated that costs increased 8% to 10% for employers and employees in southeastern Wisconsin this year and now average about $14,500 for family coverage.

The Kaiser survey found that nearly one in three workers is now in a health plan with at least a $1,000 deductible. And the gradual increase in out-of-pocket expenses may be contributing to the greater acceptance of so-called consumer-directed health plans - or high-deductible plans paired with health savings accounts and health reimbursement accounts.

"We've seen a steady increase in consumer-directed health plans, but we've seen a significant increase in the past year," said Rob Grant, a benefits consultant in Mercer's offices in Chicago and Milwaukee.

With health savings accounts, employees can set aside pretax dollars that can be used for medical expenses. The employer also may contribute to the account. The money stays with the employee when he or she leaves the job.

With health reimbursement accounts, employers fund the account, and the money doesn't stay with the employee when he or she leaves the job.

The goal of both is to make people more conscious of costs and encourage them to spend health care dollars more wisely.

Employees in the Milwaukee area are much more likely to be in a health plan with a high deductible and a savings account. An estimated 30% of employees in the Milwaukee area are in health plans with a savings option, compared with 13% of employees nationally.

"Employers here are much more aggressive," said Brian Jensen, a benefit consultant with Harborside Consulting.

The trend to encourage employees to take better care of themselves and live healthier also continues to take hold. Programs often include penalties, such as requiring people who smoke to pay a larger share of the cost of their health benefits.

"The soft stuff is out there - the bowls of fruit - but people are getting serious," Jensen said.

The Mercer survey also asked employers a question that has sparked a fair amount of political rhetoric: Will employers stop offering health benefits when the major provisions of federal health care reform go into effect in 2014?

The survey found 9% of large employers - those with 500 or more workers - say they are "likely" or "very likely" to no longer provide benefits. The percentage was lower for employers with more than 5,000 employees: 4%.

But 19% of small employers - those with 10 to 499 employees - say they are likely or very likely to drop coverage.

"The number still is low," Grant said.

He noted that employers will have to pay a penalty if they don't offer coverage. And even if they raise wages to help offset the cost of health insurance, employees will have to pay more in taxes.